Managing the effects of conflict

With
ongoing economic uncertainties since September 11 and the war with Iraq,
Personnel Today asked the TUC, Institute of Directors (IoD), Chartered
Institute of Personnel and Development (CIPD) and an HR expert to share their
views on the impact of war on businesses and the role HR practitioners will
play in managing its effects

Brendan
Barber, general secretary-elect, TUC

The
war is bound to have an impact at home and in the workplace. The threat of
terrorism will now grow, and some employees have loved ones on active service.
Indeed, employees in the reserve forces have been called up too. War is bound
to have an economic impact, though the precise effect is hard to predict.

Handling
the terrorist threat is always tricky. The chance of any individual workplace
being attacked – even those that make obvious targets – is likely to be small
and no-one will want to encourage anxiety or panic.

On
the other hand, there can be no excuse for not having the proper procedures,
and making sure staff know about them and practice them. As ever, the best
policy is to be honest and open with staff and to have made good preparations.
Practising a long-established procedure about which staff have been consulted
will always be less stressful than sudden new procedures introduced because of
a new threat.

Employers
and line managers should also be aware if any of their staff have family on
active service. They are bound to take a close interest in events, and this
will be understood by their workmates. It should by their managers too.

Any
war is bound to have an effect on the world economy, and individual companies
as well. However, we are also braced for the war to be used as an excuse for
bad economic news. We can confidently expect at least some redundancies – even
if planned for months – to be put down to events in the Middle East, even when
there is only the most tenuous connection.

Even
for companies that are directly affected, panic redundancies may well have a
short-term effect on the share price, but there is a possibility that conflict
will be relatively short and we could all be bouncing back in the near future.
This will be a time when companies that have genuine partnership with their
staff – where problems are shared and solved through consultation – will have
real advantages. Management through rapid external change is much the hardest
challenge for any organisation. Partnership is likely to be the most useful
part of any management tool kit.

John
Philpott, chief economist, CIPD

The
mood of uncertainty unleashed on 9/11 has deepened ever since it became clear
that the intelligence-led ‘war on terror’ would end up in a full blown ‘war of
Baghdad Revisited’. The year long build-up to military action in Iraq has
undoubtedly added to stock market weakness, adversely affected business and
consumer confidence, and stymied economic recovery. Although the underlying
cause of current woe in the world economy can be traced to the dot.com crash
and fallout from US corporate scandals, matters have not been helped by a
deadly game of diplomatic chess in which Saddam Hussein managed to split the
United Nations.

The
related uncertainty has already hit organisations and workers in the form of
falling share prices, depleted pension funds and diminished savings. However,
while the outbreak of hostilities reduces a degree of uncertainty by showing
that the endgame in Iraq is in sight, confidence is likely to remain low until
the economic consequences of war start to become clear.

If,
as optimists expect, the war is “all over by Easter”, the overthrow of Saddam
could bring an early economic dividend. Gordon Brown and the taxpayer might
have to fork out more – up to £5bn to finance the combat, and perhaps another
£15bn to help keep the peace in the next few years. But the economy overall
would eventually benefit from tapping Iraq’s oil fields – the price of a barrel
of oil dropping by up to third of the immediate pre-war level.

Other
than sharing in the obvious humanitarian concern, a short, sharp war would thus
barely make any difference to the day-to-day pressures already facing HR
practitioners in difficult economic times. Only those in organisations
employing significant numbers of military reservists are HR managers likely to
be hard pressed directly as a result the conflict.

But
things would be very different if a more protracted war, or a messy aftermath,
triggered a deeper slowdown in the world economy. The longer the campaign, the
greater the likely negative impact on consumer and investment spending,
especially if terrorists opposed to the war try to take the battle to British
and US shopping malls, leisure complexes and transport networks. Prolonged
disruption of oil supplies would in-turn raise rather than lower oil prices,
delaying the resumption of strong economic growth and forcing many
organisations to retrench into a wave of cost cutting.

In
this more worrying scenario, organisations would be under greater pressure to
contain wage costs, freeze recruitment, and resort to redundancies. Security
and surveillance would also be growing concerns. HR practitioners would be
under greater pressure to help organisations reduce staffing costs, while at
the same time preserving staff moral, motivation and commitment. HR would thus
take on a key role on the home front of war, guiding organisations and workers
hit by the economic shockwaves in order to reduce the number of business
casualties.

Graeme
Leach, chief economist, IoD

While
the overriding concern about the conflict must inevitably be the human cost,
there also needs to be a consideration of its impact on an already fragile
world economy. There are tremendous geo-political and military uncertainties at
present, and as a result, a wide-range of potential US economic scenarios exist
– depending on the impact on oil prices and economic confidence. The Institute
of Directors has identified a number of these potential US GDP growth scenarios
for 2003, each having a very different impact.

Our
forecasts are based on different assumptions regarding the duration of the
conflict, defence spending, oil price effects and the potential response of
monetary and fiscal policy. In pure economic terms, it seems that a short war
is better than no regime change, as a quick resolution would remove the
uncertainty. The world economy would also benefit from the likely fallback in
oil prices.

US
economic prospects will be maximised if President Bush swiftly takes both
Baghdad and overcomes opposition to his fiscal stimulus on Capitol Hill. Under
the short war capitulation scenario, Bush will find it easier to obtain
Congressional approval for the fiscal stimulus package. A short and successful
war could guarantee speedy and full implementation of the fiscal package. Lower
oil prices would also provide the Federal Reserve with further opportunity to
reduce interest rates.

Escalation
scenarios are very worrying because of the knock-on implications for world
equity markets, which could fall heavily if the conflict intensifies.
Escalation scenarios do not bode well for the Euro-zone and the Japanese
economy especially. The European Central Bank’s 2 per cent inflation target
would almost certainly be breached under escalation scenarios, thereby reducing
the potential for a stimulus from lower interest rates. The Growth and
Stability Pact also limits the opportunity for fiscal stimulus. In the case of
Japan, interest rates have already been pushed to zero and the public debt to
GDP ratio and budget deficit have exploded over the past decade.

The
total economic costs of conflict are not easy to quantify as they are so wide
ranging:

–
Direct combat costs obviously depend on the duration of fighting and include
weapons, ammunition and transportation.

–
The indirect ‘knock-on’ costs are often overlooked in conflict cost
assessments. These include long-term medical costs and additional training
costs to replace lost or injured soldiers, sailors and airmen; the future cost
of humanitarian assistance, peace keeping and nation building activity – where
the sums of money involved could be considerable and long-lasting.

–
Collateral economic effects are of most concern when assessing the cost of a
conflict. These refer to the wider macroeconomic effect of changes in defence
spending and key macroeconomic variables such as the price of oil, consumer and
corporate confidence and the stock market. Collateral effects also include
monetary and fiscal policy responses.

Any
assessment needs to distinguish between gross and net costs. The direct cost to
the US this war in Iraq will be much higher than in 1991. The gross US direct
cost of the 1991 war was £51bn ($80bn) in 2002 prices. However, cash and other
contributions from Saudi Arabia, Kuwait and Japan reduced the net cost to just
£2.5bn ($4bn) in 2002 prices. Various US studies suggest that depending on how
short or protracted the war is, the direct cost will range from £32bn to £95bn
($50bn to $150bn) in 2003. One study suggests that over the next decade, the
total direct and indirect cost might range from about £95bn to £477bn ($150bn
to $750bn). On balance, we think the total direct and indirect cost will be
towards the lower end of these estimates. However, in war, the only certainty
is uncertainty and so only time will tell.

Paul
Sanchez, worldwide partner, Mercer Human Resource Consulting

When
organisations face challenging times from external forces or internal events,
the need to communicate with employees becomes greater. And doing it right
becomes even more challenging.

War
in the Middle East and other global economic and social developments can touch
organisations both directly and indirectly. There may be a real threat of
terrorism or hostilities affecting the safety of staff or disrupting sales and
operations. Or the continuing economic downturn may impact on performance, with
issues of organisational restructuring and redundancies needing to be
addressed.

Whatever
the scenario, a communication vacuum can only work to the disadvantage of the
organisation, its employees and even its customers. Human resources, together
with corporate communications, bear prime responsibility for crafting a coherent
communication strategy, creating key messages and ensuring there are efficient
and effective ways to get this information to employees in a timely way.

Communication
strategy: Deciding what, when and how to get information to employees demands
the sort of forward planning that most companies avoid until the need, threat
and demand become urgent. But communicating in the absence of a full-out
emergency will serve the best interests of everyone. The issues may be complex
and remote from the immediate interest of employees. Yet the message still
needs planning with a professional communications approach. At the heart of
this is the need to weigh up the needs of the organisation and those of its
employees. More shared information generally leads to a more aligned workforce.

Content:
In forming a communication strategy, HR and communication professionals should
strive for balance: inform, but not overwhelm; provide context and guidance for
what is happening; and give instructions on where to go for further information.

How
much information is too much? How much should be shared with the
organisation?Today’s media and
information-rich environment would suggest and demand perhaps more than we have
traditionally shared.Here are some
broad topics that will typically be in the communication line-up:

–
General state of the organisation (including financial health)

–
Competitive threats

–
Nature of challenges ahead

–
Critical roles that employees play

–
Benefits, including accident provisions

–
What the organisation is offering by way of helpful information

For
example, it would not be out of line for organisations with global operations
to inform employees about what is being done to ensure business continuity in
the event of hostilities; or to describe efforts to ensure that there are
back-up communication systems including ‘dark websites’ to use in the event of
an emergency.

Delivery:
Today, most organisations have several ways of getting information to
employees. The delivery mode should match the gravity of the messages and the
need for the organisation’s leadership to be seen and actively associated with
the ‘informing’ process. From e-mail to face-to-face, it’s important to select
the right media mix for both the subject matter and target employee groups. When
the goal is co-operation and behaviour change, methods should be selected that
engage and allow for two-way communication. If the need is for rapid awareness,
then e-mails and postings are likely choices. If it is for full understanding,
smaller group meetings will work best.

We
are all like passengers on a delayed airplane, wanting to know why, how long,
and what the impact of the delay will be on our plans. Our organisations and
their ‘cabin crew’ must inform and offer guidance. Leading employees from awareness
to understanding and co-operation is no trivial challenge and HR finds itself
at centre stage.